Disaster planning could save $12bn: study

Westpac CEO Gail Kelly is part of the business roundtable that commissioned an analysis suggesting the cost of natural disasters will rise from around $6.3 billion a year to $23 billion in 2050, as more people move into low-lying, cyclone-prone and fire-threatened regions.
Photo: Paul Harris

Governments could save $12 billion over the next four decades by investing in disaster mitigation and resistance measures, such as raising the Warragamba Dam and building more bushfire-proof housing, a study has found.

The Deloitte Access Economics analysis was commissioned by an Australian business roundtable including Westpac chief
Gail Kelly
and IAG Group CEO
Mike Wilkins
.

It predicts the cost of natural disasters will rise from around $6.3 billion a year to $23 billion in 2050, as more people move into low-lying, cyclone-prone and fire-threatened regions.

The explosion in costs is forecast to outpace growth in the economy, putting an increased burden on governments, businesses and consumers.

The roundtable – which includes the Red Cross, property company
Investa
, telco
Optus
and reinsurance giant
Munich Re
– argues governments should put $250 million a year over the next 37 years into a national fund. They say every dollar spent from the fund on preventive measures could save around $3 in post-disaster recovery spending.

The roundtable was established after one of the worst years for natural disasters in 2011.

Insurers such as
IAG
and rival
­Suncorp Group
were hit by a deluge of policyholder claims after major floods in Queensland and hailstorms in Victoria on Christmas Day.

Deloitte Access economist
Chris Richardson
said examples of potential savings include raising Sydney’s ­Warragamba Dam wall by 23 metres to cut flood costs in the Hawkesbury-Nepean basin between now and 2050 to $1.1 billion from $4.1 billion – saving more than $8 for every dollar spent up front.

In Victoria, bushfire mitigation aimed at reducing fuel loads could have a cost-benefit ratio of 3:1, and a similar saving could be generated in Queensland by making homes more resistant to cyclones.

Mr Richardson said the expected surge in disaster costs in coming decades would be driven by a rising population and increases in the value of homes and community infrastructure.

Growth in disaster spending will also be faster than economic expansion because demographic trends suggest more people are choosing to live in low-lying, warmer and coastal areas, which are more likely to experience floods and cyclones.